Expert discovers scope 3 reporting ‘completeness’, efficiency hack

In light of the latest Scope 3 emissions reporting obligations, one expert says that auditors are struggling to ensure that the reports are “complete,” rather than with the calculations themselves.

Aletta Boshoff, leader of corporate and sustainability reporting and an advisory partner at BDO, believes that firms and auditors can start using their general ledgers to populate their scope 3 emissions reports.

“How can you leverage your understanding of the client to make the process of this carbon footprint, scope 3, the mandatory report, more efficient and effective?” Boshoff said.

“Auditors would like to be as efficient and effective as possible [for] assurance of the mandatory sustainability reports and carbon footprints.”

“The one system that really is already subject to audit already has a lot of systems and processes, controls around it, is your financial system, your general ledger.”

Boshoff noted that the general ledger centralises all financial transactions to support financial statement preparation – an application that can be transferred to emissions reporting.

“Because entities already do recordkeeping and prepare general ledgers and trial balances to support their financial statements. If we can tap into that same record-keeping that we are hoping already has a lot of rigour around it, and it's already subject to audit, that would make all of this easier.”

“If we can use that same general ledger to support the measurement of greenhouse gas emissions, then we are not creating something extra; we’re tapping into something that’s already there.”

“It’s not possible [to tie this carbon data back] for every category, but as far as possible, tie it back to the general ledger, which you’ve already audited. That [will] save you time and therefore money for the client and the auditor.”

As reporting involves information drawn from procurement systems, supplier networks, and operational activities, Boshoff noted that organisations have already spent considerable time building their emissions inventories.

“In scope 3, it's a massively complex calculation – there's a lot of data involved, and the risk of completeness is really extrapolated in scope 3,” she told the brand.

The reason behind the completeness challenge is that information and data come from multiple sources, she said.

“Many firms are coming up with all kinds of spreadsheets and technology that give them what all the carbon accounting activity data is, but I've not seen many of them trying to tie it back or reconcile it back to the general ledger.”

“So if we can reconcile that carbon activity data to the general ledger of the client, which is already subject to audit as part of the financial statements, that will get us across that completeness hurdle.”

Boshoff said that applying data to the general ledger will not only improve efficiency and completeness, but will also appease stakeholders.

“Stakeholders would like to know that we've got systems and processes and internal controls in place over the measurement of greenhouse gas emissions. We need the same rigour over mandatory sustainability reporting and measurement of greenhouse gas emissions as we have over the preparation of financial statements.”

“Both of these sets of information are going [to be viewed by] primary users – investors and financiers.”

“They are no longer just looking at financial statements; they are looking at both sets of information, and they would like the same governance, the same rigour, the same internal controls, systems, processes, accuracy, completeness – the expectation is the same.”